Another transition year? Analysts are uncertain

“2013 may be the final transition year... or not - Hold,” Deutsche Bank advised investors. Hold means the bank takes a neutral view on the stock over the next 12 months and does not recommend either a Buy or Sell.

Thomson Reuters’ 2012 Q4 results announced on Wednesday were ahead, but the outlook remains uncertain with 2013 guidance disappointing and below expectations, the bank said. “TR continues to be a do nothing name for us – not expensive historically and downside protection from the 4.3% dividend yield, but stubbornly weak end market demand targeting some arguably structurally challenged industries and with no clear positive catalysts in sight.” It lowered its earnings per share for this year by 10 per cent to $1.82 and its target price for the stock from C$29 to C$28.

The Financial & Risk division is still the keystone of the story, Deutsche Bank said. But the bank’s concern is that positive net sales will not happen in the second half of this year just as it did not in the second half of 2012. The most interesting statistic presented by Thomson Reuters was that one-third of installations of Eikon, the company’s flagship desktop data and trading terminal, are for new customers, indicating possible market share gains, “but F&R remains a structurally challenging industry with ‘seats’ evaporate all around us. If TR is doing in F&R what they did in Legal, which is building a platform of solutions rather than products, we won’t know for at least a year which means there’s no rush to own the shares.”

Morgan Stanley viewed the decline in the stock as a result of anticipation of lowered estimates. It lowered its 2013 EPS estimate to $1.78.

“We remain Equal-weight on TRI, as the company attempts to accelerate growth in the Financial & Risk segment. Results over the next few quarters will illustrate whether management can successfully orchestrate a turnaround. We view the strong recent performance in the stock as market-driven as opposed to company-specific.”

J P Morgan said Thomson Reuters’ new management – James Smith took over as chief executive from Tom Glocer at the beginning of last year – is making positive internal changes, for example “rolling out the new Eikon 3.0 desktop platform, simplifying products, sunsetting legacy products, and improving customer service. We think the TRI ‘story’ will improve over time as new management executes its strategy and end-market pressures eventually ease, but stock valuation is not yet compelling for us.”

J P Morgan remained Neutral on the stock. “We commend TRI management for their internal efforts in a difficult environment, but we recognize that change will take time.” It raised its December 2013 price target for the stock to $32 from $30. 

Goldman Sachs maintained its Sell rating, with low single digit revenue growth likely for two or more years. Its $25 six-month price target is unchanged. ■